AUGUST 2 0 0 7
T he N ewsmonthly
A merican A cademy
he Academy Board of Directors has approved revised Qualification Standards,
which will take effect Jan. 1, 2008. With broadened scope and strengthened CE requirements, they are expected to affect most practicing actuaries in the United States. The revised standards, enclosed with this issue of the Update, were developed by the Academy’s Committee on Qualifications as part of continuing Academy efforts to keep the actuarial profession relevant, reputable, and accountable to its clients in a fast-paced, competitive global economy. “This was a huge step in assuring the public that actuaries who provide statements of actuarial opinion are qualified to do so,” said Academy President Steven Lehmann. “It also goes a long way toward making continuing education standards for actuaries consistent for all U.S.-based actuarial organizations.” Development of the new standards has been a multi-year project. Beginning in 2002, the committee began soliciting input from the profession on whether the standards should focus solely on statutory and regulatory work or should be expanded to include all Statements of Actuarial Opinion (SAOs). A first draft was exposed for comment in May 2004 and a second
Inside Annual Meeting Make plans to attend the Academy’s Annual Meeting luncheon, Oct. 3 in Washington���������������������� Page 2 ASB Action A report on activity at the June ASB meeting ������ Page 5 Women and Social Security A new issue brief considers why the distribution of benefits is often unequal �� Page 6 Accounting for OPEBs The Academy affirms its support for GASB efforts�������������������������������� Page 7
version was exposed for comment in January 2006. The committee received more than 200 comments on the second exposure draft from various groups and individuals. Highlights of the revised standards include the following: ® The revised Qualification Standards apply to all actuaries who are members of one of the U.S.-based actuarial organizations and who issue SAOs in the United States, as well as members of any actuarial organization that is not U.S.-based but requires its members to meet the standards when practicing in the United States. ® Under the revised Qualification Standards, an SAO is an opinion expressed by an actuary in the course of performing actuarial services (as defined in the Code of Professional Conduct) and intended by that actuary to be relied upon by the person or organization to which the opinion is addressed. (The code defines actuarial services as “professional services provided to a principal (client or employer) by an individual acting in the capacity of an actuary. Such services include the rendering of advice, recSee Revised standards, Page 8
Revised Standards Approved
DOE Rescinds Pension Policy by
J a m e s Ve r l a u t z
he Department of Energy
(DOE) recently announced it would not reinstate a controversial policy denying reimbursements to DOE contractors for the costs of their new employees’ defined benefit pension plans. When the DOE first published this policy in the spring of 2006, the Academy’s Pension Practice Council responded almost immedi-
ately with a letter asserting that such a policy was antithetical to the needs of both employees and employers. The letter also pointed out that it was wholly inappropriate for a government agency to be creating a pension policy diametrically opposed to the Pension Protection Act, then being debated in Congress, without even seeking public comment. The Academy’s position was widely reported in the media and cited by numerous See doe pension, Page 6
Calendar August 2 Academy Executive Committee meeting, Washington
5-9 National Conference of State Legislatures annual meeting, Boston
9-11 SOA 42nd annual research conference, Pittsburgh
13 Academy Life Capital Adequacy Subcommittee meeting, Chicago
24 Academy Life Reserves Work Group meeting, Chicago
September 5-6 ASB meeting, Washington 10-11 CAS Casualty Loss Seminar, San Diego 17-18 SOA Valuation Actuary Symposium, Austin, Texas
19 Academy Council on Professionalism meeting, Washington
20 Academy Webcast on Qualification Standards
20-21 SOA small group health underwriting seminar, Raleigh, N.C.
24 Academy Social Insurance Committee meeting, Washington
24-26 SOA critical illness conference, San Antonio
25 Academy Life Financial Reporting Committee meeting, Washington
26-28 SOA DI and LTC insurer’s forum, San Antonio
Academy News Briefs 2007 Annual Meeting Luncheon and Leadership Meeting
he Academy’s 2007 annual meeting luncheon will be held Oct. 3 in Washington. The noon luncheon is open to all Academy members and will feature the presidential transition ceremony and inaugural address of incoming President Bill Bluhm; the vote for new regular members of the Academy Board of Directors; and the presentation of the Jarvis Farley Service Award. The luncheon will also have a featured speaker on a topic of interest to all members of the profession. Wrapping around the luncheon, the Academy will hold a series of invitation-only sessions to discuss logistics for implementing the
Academy’s strategic plan and an international strategic plan for the actuarial profession. There will also be meetings of the Academy’s Board of Directors and leadership, as well as a meeting of the Council of U.S. Presidents (CUSP). An annual meeting reception is scheduled for the evening of Oct. 2. All events will occur at Washington’s Renaissance Mayflower Hotel, conveniently located next to the Academy office and easily accessible by Metro. For more information, go online to the Academy’s website or contact Academy Meeting Planner Denise Winston (Winston@actuary.org; 202-223-8196).
28-October 1 NAIC fall meeting, Washington
OCTOBER 1 Council of U.S. Presidents meeting, Washington
2 Academy Board of Directors meeting, Washington 3 Academy leadership and annual meeting, Washington
4-6 North American Actuarial Council meeting, Lake George, N.Y.
14-17 SOA annual meeting, Washington 17 Academy P/C loss reserve opinion seminar, Chicago
18 Academy P/C loss reserve opinion seminar, Chicago
21-24 ASPPA annual conference, Washington 21-24 CCA annual meeting, San Antonio 25-28 IAA meeting, Dublin, Ireland
November 4 Academy Pension Practice Council meeting, New Orleans
5 Academy Pension Committee meeting, New Orleans
Links to documents underlined in blue are included in the online version of this issue at www.actuary.org/update/index.asp
Policy Expansion In response to a burgeoning workload in the area of public policy, the Academy has hired William Rapp to fill the new position of assistant director of public policy. Rapp will work closely with Craig Hanna, the Academy’s director of public policy, in directing the work of policy analysts as they assist the Academy’s many volunteer committees, task forces, and work groups in providing actuarial expertise to Congress, state legislatures, regulators, and other policymakers. Rapp has extensive public policy experience, including serving as staff attorney for the National Veterans Legal Services Program, as a senior regulatory analyst for the engineering consulting firm Dames & Moore, and as a state legisla-
A c t u a r i a l U p d at e A u g u s t 2 0 0 7
tive associate for Stateside Associates, a firm that helps companies and industry associations work effectively with state and local governments. Rapp is a graduate of Lewis & Clark Law School. He received his undergraduate degree at Willamette University.
you look into as a handle, and probably seeing nothing more than his own reflected eyelashes. But here’s the consolation: The link to the website, which remains an excellent resource for the legislatively curious, has no such obstructions. Try it.
Wrong End Up A house ad
After several publications printed an opinion piece by Texas policymakers that misinterpreted the Academy’s position on accrual accounting for other post-employment benefits (see story, Page 7), the Academy responded with letters to Texas policymakers and the editors of various publications signed by the co-chairpersons of the Academy’s Joint Committee on Retiree Health. In the letters, Jeffrey Petertil, a
In the News
in the June Update alerting Academy members to the Library of Congress website (http://thomas.loc.gov) as a resource for looking up the particulars of federal legislation was illustrated with a photograph of a little boy peering into a telescope. An alert Update reader has pointed out that our young astronomer was looking into the wrong part of the telescope, holding the part
consulting actuary from Oak Park, Ill., and Adam Reese, a consulting actuary with the Hay Group in Arlington, Va., explained the joint committee’s support of the process that led to Governmental Accounting Standards Board statements 43 and 45. The letter was published June 20 in the Fort Worth StarTelegram and in Bond Buyer, a national publication on municipal bonds, on July 2. A June 24 Washington Post “Financial Futures” column used the Academy’s Social Security Game as a primer for readers on the issue of Social Security reform. The Post’s Martha Hamilton wrote that in order to have a say on how Social Security should be fixed, it is important to understand the choices involved. She said that the Academy’s game is an easy way to start thinking about what needs to be done. The game was also mentioned on The Motley Fool.com. The Academy’s insured-loss estimates from a chemical, nuclear, biological, or radiological terrorist attack in New York and other select cities were routinely mentioned in news coverage of a possible extension to the Terrorism Risk Insurance Act. The stats appeared in the National Underwriter Property & Casualty edition on June 4, in the Washington-based publications The Politico and The Hill on June 6 and 7, respectively, and online at Bloomberg.com on June 21. Academy Senior Pension Fellow Ron Gebhardtsbauer was the primary source for a June CNNMoney.com article on taking early Social Security benefits. Gebhardtsbauer warned of the danger of w w w. a c t u a r y. o r g
permanently reducing future Media Relations Activity Report—First Half 2006 and First Half 2007 Social SecuMedia Impressions: 242 254 rity benefits First Half 2006 2006—13,702,836 by drawing First Half 2007 2007—36,812,655 benefits early. Web Impressions: 2006—89,706,658 He also dis2007—95,839,749 67 cussed factors 58 50 56 Placements Requests Interviews to consider Note: Media impressions are a combination of readership, listenership, and viewership. Web impresbefore collectsions are distinct from media impressions and reflect the number of daily, unique individuals who ing early benaccess a website. A placement is an article containing an Academy reference and/or a quote or attribution from an Academy spokesperson. A pickup is the publication of an Academy news release, media efits, includalert, statement, or letter to the editor. ing increased longevity, finances and health, tax situ- June 10 Washington Post and Neve said that the work of ations, and plans to continue the June 11 Dallas Morning the Academy’s Life Reserves working. News. Work Group on technical points, such as assumption A June 11 Pensions & InvestNancy Bennett, chairperson margins and refinements ments report on the efforts of the Academy’s Invested in the credibility weighing of Washington lobbyists to Asset Work Group and process for mortality, could postpone the effective date of vice president of risk manbe finished by the end of the the Pension Protection Act’s agement for Ameriprise year. funding provisions quoted Financial in Minneapolis, Gebhardtsbauer. He said was quoted in the June 11 James Verlautz, chairperson that if regulations governedition of BestWeek speaking of the Academy’s Pension ing funding are released too about the Academy’s June 4 Committee and an actuary late this year, actuaries will report to the National Aswith Mercer Human Rebe forced to scramble and sociation of Insurance Comsource Consulting in Minrecompute funding calculamissioners (NAIC) on its efneapolis, was quoted in an tions—possibly upsetting cli- forts to develop a long-term article on investment bankents. At the same time, Gebmechanism for assessing the ing firms managing defined hardtsbauer said, fast action risk in hybrid securities. benefit pension plans that on regulation is important ran June 12 in Compliance because employers’ decisions A June 21 National UnderWeek. this year depend on the new writer Life & Health onlinerules. edition article discussing the A June 10 San Diego UnionAcademy’s June 20 webcast Tribune feature on planning The Academy’s monograph on NAIC summer meeting for retirement directed readMedicare Reform Options was action quoted Mike Boerner, ers to the Academy’s Pension the subject of a Cox Newschairperson of the Academy’s Assistance List (PAL) program papers, “Window on WashValuation Law and Manual to locate actuarial volunington” entry that was pubTeam and managing actuary teers to help answer pension lished in the online edition with the Texas Department questions. of the Austin American-States- of Insurance in Austin, and man on June 11. Other meDave Neve, co-chairperson of Tonya Manning, the chief dia also covered the release the Academy’s Life Reserves retirement actuary for Aon of the monograph, including Work Group and second Consulting in Winstonthe National Underwriter vice president of the PrinciSalem, N.C., was quoted in Life & Health web edition pal Financial Group in Des a June 25 Business Insurance on June 13 and the Bureau Moines, Iowa. Boerner said article on phased retirement. of National Affairs on June that the Academy’s proposed 14. The monograph was redraft valuation manual, Kevin Bingham, a principal leased at the Academy’s June providing a set of centralwith Deloitte Consulting in 11 Capitol Hill briefing on ized standards for statutory Hartford, Conn., is the auMedicare and Social Security reserves, should be comthor of an article on medical reform options. Notices of pleted for consideration by malpractice rate filings that the briefing appeared in the the NAIC at its fall meeting. ran in Physician Insurer. A c t u a r i a l U p d at e A u g u s t 2 0 0 7
New Academy Members
n the first half of 2007 , 380 new members took an important step in their professional journeys and became members of the Academy. This newest crop of Academy members is relatively young (the average age is 33) and diverse. Among their numbers are three fellows of the Canadian Institute of Actuaries, two fellows and one associate of the U.K. Institute of Actuaries, and one fellow and one associate of the Australian Institute of Actuaries. The new members include 276 who are either fellows or associates in the Society of Actuaries, 72 who are either fellows or associates in the Casualty Actuarial Society, five
Russell Howard Ackerman Andrew Adams Mawunyo Kwasi Adanu Jon Richard Aerni Igor Afanassiev Armine Aharonyan Eileen MacDonnell Allen Philip Michael Allen Roger Glenn Allen Julie Anderson Mark Anderson John Anthony Annino Amel Arhab Carlos Arocha Yuliya Vladimirovna Artemov Steven Babyak Yongmei Lori Badgett William Bainbridge Robert Baldwin Kirsten Camilla Barnum Alexis Monique Morin Christopher Edwin Bean Anthony O’Boyle Beirne Susan Bellingham David Benseler Tatiana Berezin Jonathan Besecker Robert Birmingham Nicola Leslie Blaha Ellen Jo Bode Alexander Bogdanov James M Boland III Eric Wayne Bookman Samuel Boustani Ishmealina Boye James Brahm Stephanie Lyn Breuer Adam Brown Elizabeth Brown Emojoy Brown Lan Zang Brown Melissa Ann Brown Kati Buccinna Robyn Budyszewick Timothy Bulat Seth Lee Marshall Burstein Lindsey Bussabarger Xiaoyan Vanessa Cao Corey Carriker Lauren Cavanaugh Adam Chan Bernard Lee Chan Ezekiel Yih-Neng Chang Ioannis Chatzivasiloglou Jung-yi Chen Michael Chen Yon-Loon Chen Li Cheng Boris Chernyak Chung Man Janice Ching
Vernon Lionel Chorn Diana Chow Linda Chow Melanie Christensen Huong Elaine Chu Joanna Chu Brent Robert Chubbs Raul Cisneros Peter Geoffrey Clare Christopher Cleveland Xiaolu Mu Coffey Daniel William Colby Jared Collings Allan Corkum III Adriel Cornman Tom Crawford Karen Crosby Frederica Daniels Dawne Davenport Nicholas Jeremy Davis Victor Pratt Davis Amy Dehart Lisa-Ann DeNeill Emily Mae DeWald Evan Landau Dial Jeffrey Dollinger Monica Dragut Haihua Du Mary Anne Dutemple Brett Brooks Dutton Sarah Duyos Carolyn Edmunds Timothy Nicholas Egizio Seda Ekizoglu David Vern Ellsworth Yehoshua Engelsohn Christopher Keith Falconer Caryl Fank Christopher Fanslau Denise Fast Philip Fehlen Julie Ferguson Kevin Ferris Ryan Edward Fleming Timothy Fleming Jason Franken Brian David Frick Yingmin Fu Andrew Louis Gaffner Joseph Gage Michael Gagliardi Timothy Garcia Emily Whitney Gingrich Alla Golonesky Heather Gordon Jennifer Graham Shawn Alan Graham Paul Griffin John Grove Mary Ann Grzyb Yan Guo
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who are either fellows or members of the American Society of Pension Professionals and Actuaries, and one fellow and one associate in the Conference of Consulting Actuaries. There are 49 enrolled actuaries. The vast majority (244) are employed by some insurance organization. Of the rest, 70 are consulting actuaries, nine work for an organization serving insurance, four are listed as government employees, two work for insurance departments, and one works for an insurance broker. For readers doing the math, the employment of the rest is listed as miscellaneous, unaffiliated, or unknown.
Damon Hacker Jeannette Marie Haines Andrew Michael Hallsworth David Scott Hamilton Michael Hanley Ronald James Harasym Kevin Hare Lynette Louise Harel Jason Heissler Amanda Holland Jeffrey Royal Holloway Adam Michael Holzman Sheri Holzman Wei-Fang Hsieh Jei-Pei Huang Zhaosheng Huang Trevor Huseman Yueh-Hwa Serena Hwang Aniela Karina Iancu Malgorzata JankowiakRoslanowska Adam Jarvela Andrea Johnson Aaron Paul Jurgaitis Nicholas Kallis Suzanne Karam David Kaye Timothy Keister Bilal Arshad Khan Samir Khare Thomas Kilcoyne Ji-Hyun Kim Patrick Kinlaw Sebastian Joseph Kleber Sarah Klein Chad Andrew Kleindorfer Stuart Kliternick Lee Ko Kush Kotecha Matthew Paul Kotten Ellen Krol Inna Krykova Robert Kuhl Michael David Kula Sumit Kundu Kevin Kuzmick Christopher Kwon Stephane Lalancette Misty Lam Jeffrey Lamy Ryan Lane Grace Katherine Lattyak Don Le Jeffrey Lee Jeffrey Leeds Casey Michael Leth Maria Lynn Leth Haobo Li Huibin Li Liya Li
Mei Li Monica Li Thutruc Tran Li Yi Li Margaret Liang Donna Licciardi Bing Lin Joseph Litka Shujuan Liu Eric Lo Brett Logterman William Londeree Di Lu Michael Vincent Lucchese Joanne Lui Paul Thomas Lupica James David MacLean Alistair Macpherson Dorothy Lentz Magnuson Eric Edward Malacane Kurt Michael Manke Rodney Muchineripi Manzanga Xiaoye Mao Michelle Marks-Salama Jonathan Martin Christopher Martinez Kimberley Michelle Mason Michelle Anne McAfee Robert McCleish IV Jacob McCoy Edwin Larry McNamara Jr. Todd Meier Ning Meng Chad Mezvinsky Scott Joseph Michels Chris Michelstetter Gary Miller Travis John Miller Yuna Mindlin Anna Mitchell Laura Mitchell Shane Mock Kerry Moroz William Muccifori Megan Mulcahy Lisa Mullennix Randy Murray David Mycek Ben Neelley Kristi Nelson Benjamin Reiter Newton Melissa Nicholas Ning Ning Stephanie Micaela Noonan Jason Nowakowski Henry Nwokoma Sean O’Dubhain Brad Ober Amy Ovuka Ginette Pacansky
Fausto Palazzetti Pete Panno Phillip Panther Brian Edward Pauley Robert Peat Loreley Pena Banchik Samuel Peters Paul Michael Pierantozzi Jennifer Pilkington John Pinkerton Chonlada Pongpipattanachai Martha Bronson Posey Louis Broadrick Posick David Prario Stephen Prevatt Jeffrey Todd Provance Brenton Charles Pyle Thomas Pyle R. Douglas Rader Moshe Daniel Radinsky Merideth Angela Randles Anita Marie Recchio Douglas Redman Jeremy Shane Reed Nicholas Joseph Reed Jeremiah Reuter Scott Reznick Joseph Michael Rinker Joanie Roberts Crystal Robinson John Donovan Rodgers Paul David Roe Brad Rokosh Steven Leslie Rolfsmeier II Scott Jason Rosenberg Jeffrey Roth Yori Barak Rubinson Philip Russo Elina Ryabtseva James Joseph Sabater Richard Lee Santos Anita Sathe Daniel Brian Schnur David Scholl Daniel Schommer Kathleen Schroeder Tricia Schwabenbauer Cory Joseph Sehlhorst Kathleen Selck Gregory Vincent Sgrosso Jonathan Shampo Abdullah Sheikh Melissa Lillian Shelley Frances Hsiao-Chien Shen Zilan Shen Renee Shiller William Shipley Kevin Lynn Shirley Prabhdeep Singh Stacey Sinkula
in Washington, the Actuarial Standards Board (ASB) met via teleconference with Paul Seymour, chairman of the British Board for Actuarial Standards. Formed in 2006 in response to findings in the Morris Commission’s review of the British actuarial profession, the board is a government entity that sets technical (but not professional) standards for British actuaries. During the teleconference, Seymour and ASB members compared notes on the two standard-setting bodies and discussed the role of non-actuaries in the standard-setting process. Seymour expressed interest in attending an ASB meeting later in the year, and proffered an invitation to any member of the ASB visiting London on the second Monday of the month to attend a meeting of the British board. At the same meeting, the ASB adopted
Helen Sirois Nancy Skinner David Andrew Smead Gregory Smith Robert Smith Hillel Soberman Daniel Soderberg Anita Solow Fuying Song Isaac Squire Amy Lyn Steburg Gerald Stein Denise Stephenson James Sterner Dan Stites Nathan Stone Michael Strome Maryann Stupka Zhenhua Sun Taher Suratwala Scott Syverson Max Tang Shane Tanzer Leslie Taylor Michelle Ann-Marie Thompson Timothy Ryan Thompson Evan Tobias Nicole Uken Frederick Upton Betsy Uzzell Lisa VanDermark Laura Andrea Vazquez Christiaan Franciscus Veldhuis Son Thai Vu Anthony Wagman Kathryn Ann Walker Kyle Walster Eric Walta Jack Denny Walton III Xuelian Wan Benjamin Wang Chi-Ping Wang Heidi (Hongtao) Wang Jianli Wang Suzanne Warner Malichi Scott Waterman Shelley Marie Webb Clark Weeks Melanie Wegner-Gregg D. Andrew Wei Nathan Paul Wenz Ginger Werwie Brian West James West Kenneth Westman Mark Russell Westmoreland Rebecca Louise Wietbrock Therese Williams Robert David Winn John Thomas Winter David Wood Kevin Woodrich Stevens Woods Jonathan Woodworth Shawn Ashley Wright Ivy Wu Yanming Wu Joseph Larry Wurzburger Shuo Xu Frank Lee Yeager Rong Yi Lynn Yu Ilana Zaner Ying Zhang Kan Zhong Li Zhou Song Zhou Jingqiu Zhu Yonghua Nicole Zhu Zengdi Zhuang
t its June 26-27 meeting
the property/casualty unpaid claim estimates draft document as Actuarial Standard of Practice (ASOP) No. 43. As stated in the second exposure draft, the new standard will be effective Sept. 1. The ASB also approved the exposure of the repeal of ASOP No. 9, Documentation and Disclosure in Property and Casualty Insurance Ratemaking, Loss Reserving, and Valuations. The exposure document includes a table showing how each section of ASOP No. 9 is covered by ASOP No. 41, Actuarial Communications, and by several precepts of the Code of Professional Conduct (thereby obviating the need for ASOP No. 9). At the same time, the board approved a proposal to review and revise ASOP No. 41 so as to bring it up to date with current practice. Finally, the board established a task force to review and propose any appropriate changes to the introduction to the standards that was adopted in December 2004.
Life and Health Qualifications Seminar Nov. 5-8, 2007 Key Bridge Marriott Arlington, Va.
Who Should Attend? FSAs (effective 2000 or later) may not meet all of the life- and health-specific qualification standard requirements to be able to issue Prescribed Statements of Actuarial Opinion. The Life and Health Seminar can solve that problem. For more experienced actuaries, it may also serve as a basic education refresher or a component of continuing education. The seminar will be taught by recognized industry experts, including:
➤ Donna Claire, president of Claire Thinking Inc. ➤ William Cutlip, president of William C. Cutlip Consulting ➤ Darrell Knapp, executive director of Ernst & Young LLP ➤ Esther Milnes, former vice president and chief actuary, individual life, of Prudential Financial ➤ Craig Morrow, actuary with the Hartford Life Insurance Cos. ➤ Sheldon Summers, chief actuary for the California Department of Insurance ➤ William Thompson, principal and consulting actuary for Milliman ➤ D. Joeff Williams, consultant with Actuarial Management Resources
For more information and to register online, go to www.actuary. org/seminar/index.asp or contact Rita Winkel, the Academy’s legal assistant (202-223-8196; firstname.lastname@example.org).
A c t u a r i a l U p d at e A u g u s t 2 0 0 7
Disparate Benefits: Women and Social Security
are calculated using gender-neutral rules. But because of earnings histories and other factors, the distribution of benefits can be anything but equal. According to a new Academy issue brief, not only is the average woman more likely to receive benefits that are lower than those of her male counterpart, she is also more dependent on the benefits she receives. Written by the Academy’s Social Insurance Committee, Women and Social Security examines both the factors that contribute to disparities in Social Security benefit levels between men and women and the specific impact of various reform proposals, including individual accounts, on the retirement security of older women. “As policymakers evaluate various options to reform Social Security, they shouldn’t forget that Social Security remains an extremely important source of retirement income for women,” said Ken Buffin, chairperson of the Social Insurance Committee. ocial Security benefits
men older than 62. The poverty rates for single women 65 and older are some of the highest for any subgroup in the country. While the poverty rate for a married couple over 65 is only 5 percent, the number jumps to over 20 percent for single women in the same age range. The issue brief looks at some current Social Security reform proposals with an eye toward their effect on women. In the case of proposals to require or allow individuals to accumulate a portion of their Social Security contributions in individual accounts, the risks for older women are familiar: amassing inadequate benefits, outliving funds, absorbing inflationary costs if benefits aren’t adjusted for changes in cost of living, and losing spousal benefit assets because of death or divorce. Other members of the committee who contributed to the issue brief are Ed Burrows, Michael Callahan, Ron Gebhardtsbauer, Eric Klieber, Dimitry Mindlin, Bruce Schobel, Sven Sinclair, P.J. Eric Stallard, Ken Steiner, Joan Weiss, and Louis Weisz.
Once again, the Academy weighed in. The level of detail provided in the DOE’s request for comment made it easier to respond comprehensively on each point the DOE raised. In its second letter, the Academy acknowledged the DOE’s concerns but demonstrated that prohibiting DB plans for future employees wouldn’t control the volatility or level of pension expenditures. At the same time, the Academy suggested other courses of action that could resolve the DOE’s issues without destroying its current retirement plan framework and creating even more problems for the department, its contractors, and their employees. All of the many comment letters the DOE received were made public, and the Academy’s letter was frequently quoted in the media. We believe the Academy’s
reputation gave our letter extra credibility with both the media and with policymakers. In the end, pressure from Congress, union representatives, contractors, and other interested parties (based in part on input from the Academy and actuarial consulting firms) convinced the DOE that it should rescind its policy. We believe that our perspective on other ways to resolve the DOE’s concerns gave the department a way to gracefully back away from the controversial policy without rejecting its primary goal of finding a way to control volatility.
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other groups and by key legislators. As a result, Academy staff and volunteers spent considerable time discussing the policy with congressional staff, other policymakers, and the media before Congress forced the DOE to suspend the policy for a year. This past spring, the DOE issued a request for comment that clearly outlined the personnel issues it was facing and the reasons for its proposed pension policy. One very significant factor the DOE cited was the difficulty of reconciling its unavoidably consistent revenue base (the budget) with a volatile pension funding requirement. In its request for comment, the DOE made it clear that it still favored its original policy and that in the absence of significant opposition it would move toward re-implementing it.
Because of Social Security’s genderneutral rules, a woman who retires with the same average lifetime earnings as a similarly situated man will receive the same benefit. But the average woman’s work history is often not the same as that of the average man. Not only are women more likely than men to take time off from work because of child care or other family responsibilities, women are generally paid less than men. In 2005, the nationwide median wage for women working full time was only 77 percent of that for men. These factors, coupled with the facts that women are less likely to have disability coverage, that they continue to live longer than men, and that they are more likely to be single, widowed, or divorced in retirement, mean that women are much more likely to deplete their savings and depend on Social Security as their primary source of income in retirement. The numbers are telling: More than 40 percent of women 62 and older rely on Social Security for 90 percent of their income, compared with 28 percent of
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James Verlautz, a consultant with Mercer Human Resource Consulting in Minneapolis, is chairperson of the Pension Committee and a member of the Academy’s Board of Directors.
Texas Op-Ed Draws Academy Correction
by Texas policymakers that misrepresented the Academy’s position on accrual accounting for other post-employment benefits (OPEBs) drew a quick response from the Academy’s Joint Committee on Retiree Health. The opinion piece, signed by Susan Combs, Texas’ comptroller of public accounts, Sen. Robert Duncan, and Rep. Vicki Truitt, supported Texas legislation that would impede the implementation of accounting standards requiring governments to report the full annual cost and long-term unfunded obligation of OPEBs. The authors misinterpreted the Academy’s position on Governmental Accounting Standards Board (GASB) statement 45 when writing that “the American Academy of Actuaries believes the rule would damage the credibility of a balance sheet and add unwarranted volatility.” The basis for this assertion was the joint committee’s 2006 letter to the Financial Accounting Standards Board (FASB), which was developed in response to proposed changes to financial accounting standards for pension and OPEBs in the private sector. The 2006 letter suggested that FASB consider revising the measurement process before assigning the existing measure of obligation to the balance sheet. It did not, however, advocate that the obligation should be marked to zero as the opinion piece suggested. On July 2, The Bond Buyer, a national publication on municipal bonds, published a letter to the editor signed by Jeffrey Petertil and Adam Reese, who co-chair the joint committee. The letter, one of several letters to Texas policymakn opinion piece
Correction In a June Update article on the April Financial Accounting Standards Board (FASB) roundtable discussion on valuation guidance, Leslie Seidman was erroneously identified as a FASB staff member. She is, in fact, a board member.
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ers and various publications, asserts the joint committee’s support for the process that led to GASB 45, as well as accrual accounting for OPEBs. “We were concerned that our response to FASB’s invitation to comment on incremental reform was being used to gut the entire work of GASB, which we largely support,” said Petertil. “The Texas officials’ selective use of language in our FASB letter was relayed to us by actuaries, and others in that state, who had an accurate sense that we were being quoted out of context. Our initial response was measured, but the publication of the opinion piece demanded a stronger statement from the committee and the Academy in support of GASB.” The letter to the editor was based, in part, on the committee’s June 15 comments to Texas Governor Rick Perry and other Texas officials, stating that the 2006 letter to FASB was not intended to advance legislation that would negate GASB 45. The committee’s letter to Governor Perry addresses in more detail the differences between accounting standards for private-sector plans and those for gov-
ernmental entities and points out that GASB standards deal with governmental entities, which often provide stronger benefit guarantees than private-sector plans subject to FASB. “The profession expected the change from cash to accrual accounting to have a major impact on governmental employers—in part because OPEBs are much more prevalent in the public sector than in the private sector,” said Reese. “We didn’t expect to see an ostrich-like reaction from state legislators.” In its letters, the joint committee concludes that ignoring relevant financial information about the future cost of retiree health benefits will not protect taxpayers and other stakeholders. The Academy is continuing its efforts to work with both GASB and FASB on issues related to accounting for OPEBs. Similarly, the joint committee will work with the Society of Actuaries, as well as the joint Pension Finance Task Force, to develop research on appropriate measurement and accounting for retiree health benefits. —Heather Jerbi
Effective P/C Loss Reserve Opinions Seminar Oct. 17 and 18 Hilton Chicago O’Hare Airport Presented annually by the Academy’s Committee on Property and Liability Financial Reporting, the seminar is designed for actuaries who expect to prepare and/or sign NAIC Statements of Actuarial Opinion on property/casualty loss reserves in 2007. ➤ The seminar focuses on regulatory and professionalism concepts, rather than on more fundamental techniques studied by actuarial students. ➤ A small class size ensures that participants will take concrete skills back to their employers. ➤ Seminar instructors include top professionals who serve as company, consulting, and regulatory actuaries. For more information and to register, go to www.actuary.org, or contact Kasha Shelton, the Academy’s administrative/legislative manager (Shelton@actuary.org; 202-223-8196).
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Actuarial Update Associate Editors
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The American Academy of Actuaries 1100 Seventeenth Street NW Seventh Floor Washington, DC 20036 Phone 202-223-8196 Fax 202-872-1948 www.actuary.org Statements of fact and opinion in this publication, including editorials and letters to the editor, are made on the responsibility of the authors alone and do not necessarily imply or represent the position of the American Academy of Actuaries, the editors, or the members of the Academy. ©2007 The American Academy of Actuaries. All rights reserved.
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ommendations, findings, or opinions based upon actuarial considerations.”) ® To meet the general qualification requirements under the revised Qualification Standards, an actuary must obtain membership in one of the five U.S. actuarial organizations or be a fully qualified member of another actuarial organization that is a member of the International Actuarial Association; have three years of responsible actuarial experience, defined as work that requires knowledge and skill in solving actuarial problems; and be knowledgeable, through examination or documented professional development, of the laws applicable to the SAO as defined in the Code of Professional Conduct. ® Beginning in 2009, annual continuing education (CE) requirements are 30 hours per year, of which a minimum of three CE credit hours must cover professionalism topics and a minimum of six must be from organized activities that, as defined in the revised Qualification Standards, involve interaction with actuaries or other professionals working for different organizations. The new CE requirements take effect on Jan. 1, 2008, but are being phased in so that only 24 hours of CE are required in 2008 for actuaries issuing SAOs in 2009. ® Through 2010, enrolled actuaries (EAs) who
issue SAOs related to retirement plans to which ERISA applies will be exempt from the new CE requirements if they meet the CE requirements of the Joint Board for the Enrollment of Actuaries. However, EAs who issue SAOs not covered by this exemption, such as SAOs related to supplemental retirement plans or post-retirement medical benefits, must meet the CE requirements of the revised Qualification Standards. ® Under the new standards, there is no longer a process for becoming an approved CE provider. It is now up to the individual actuary to determine if attendance and participation in a particular event constitute an organized activity that is directly relevant to the actuary’s practice area relative to the subject matter of any SAO. In a July electronic letter to all Academy members, Lehmann outlined an extensive upcoming program of education about the new requirements, including articles in the Update and Contingencies and postings on the Academy’s website, a Sept. 20 educational webcast, and presentations at the fall annual meetings of all five U.S. actuarial organizations. As further information becomes available, it will be posted on a special page on the Academy’s website.
NAAC Statement of Position on Practice Standards and Other Guidance Editor’s Note: At its July 14 meeting in Montreal, the North American Actuarial Council passed the following statement of position to affirm the importance of practice standards and other guidance and to ensure that they are reviewed on an ongoing basis so that they reflect sound actuarial principles and advances in actuarial practice. The statement was signed by the presidents and presidents-elect of all U.S., Mexican, and Canadian actuarial associations.
A c t u a r i a l U p d at e A u g u s t 2 0 0 7
In recognition of:
® The actuarial profession’s commitment to identify, protect, and advance the public interest in the work of our profession, ® The importance of practice standards and other guidance to both our profession and the public, and ® The demands of a dynamic world on a dynamic profession, the undersigned leaders of the actuarial professional associations comprising NAAC recognize that our profession must continually advance. Accordingly, in concert with the ever-evolving actuarial needs of the public, we are committed to:
® Support the continual improvement of actuarial practice, ® Assess and proactively identify where practice standards and other guidance should be advanced, and ® Communicate to the profession and the public how advances in practice standards and other guidance are in the public interest. NAAC (the North American Actuarial Council) is composed of the presidents and presidentselect of the various North America actuarial professional associations.